The Other Chicago School of Economics

Just a quick post to say Thank You to all the folks who showed up to the Economics Club Autumn Social. It was a really pleasant little affair, with lots of conversation, and discussion of all sorts. A good start for the semester!

Came across two different pieces that reminded me of Professor Ziliak this morning and wanted to throw them up on the blog.

1) John Q of Crooked Timber talks about Rawls, Bentham and the Laffer Curve. Understanding Rawlsian justice through the concept of the Laffer Curve sounds pretty strange to me– personally, I have for some time now thought that the difference principle in the Theory of Justice interesting for pointing out the lower limit of society: if the welfare of an individual does not enter into the calculations of public action, that individual is not part of society, and is, moreover, not counted as having rights. Quiggin takes an entirely different view of Rawls, one that implies that we ought to have a top marginal tax rate of 73% (which sounds great to me, but politically impossible.)

2) The Environmental Economist has not apparently heard about the Cult of Statistical Significance. In a post citing all-too-familiar evidence about economists obsessed with statistical significance and error terms, we also read about the exciting new possibilities of data coming out of computer science these days. Also, what the heck is a neural net?

Nick Carnes over at Vox declares that the class war over, and the rich have won. Although he does bring up some insightful statistics, and makes a strong case that the wealthy 1% has indeed captured American political institutions, it would seem perhaps that we are, rather, at the beginning of the class war. When unions were well represented in Congress and workers rights better protected, there was something of an alliance between the classes, and it is this that has collapsed in recent times.

IMF Chief Economist Olivier Blanchard writes in the latest edition of Finance & Development about the “dark corners” of macroeconomics, and the need to keep clear of them. Macroeconomics in the last 30 years, for reasons both internal and external to the profession, had largely ignored these corners, much to its detriment in the financial crisis of 2008. Danger, it turned out, was much closer at hand that economists expected, and the result was that, when the crisis came, macroeconomists did not have a good explanation, nor a ready plan of action. Today, research in macroeconomics and finance is becoming more coordinated, in the hopes of avoiding future crises.

On the other hand, one might wonder, given the persistence of unemployment and the lack of growth in developed states, coupled with the continuation of austerity policies in the European Union and the US, is it the prevalence of darkness that is the problem, or rather the lack of adequate light? Is macroeconomics fundamentally suited to its task, or should we engage in a critique of its basic underpinnings?

No social order ever disappears before all the productive forces, for which there is room in it, have beendeveloped; and new higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society. Therefore, mankind always takes up only suchproblems as it can solve; since, looking at the matter more closely, we will always find that the problemitself arises only when the material conditions necessary for its solution already exist or are at least in the process of formation…The bourgeois relations of production are the last antagonistic form of the socialprocess of production…This social formation constitutes, therefore, the closing chapter of the prehistoricstage of human society.” -Karl Marx, A Contribution to the Critique of Political Economy, 1859

“A long-run fall in the rate of interest would do much to stimulate private investment, while an extensionof public investment could make up for its deficiencies, and a drastic policy of redistribution of incomewould increase consumption, and reduce the amount of investment necessary to preserve a reasonable level of employment. All these policies meet with serious difficulties and have to contend with violentopposition, and it remains to be seen whether it is possible for the present economic system to adapt itself to the requirements of the future.”–Joan Robinson, Introduction to the Theory of Employment, 1937

“Economic distress will teach men, if anything can, that realities are less dangerous than fancies, that fact-finding is more effective than fault-finding.” –Carl Lotus Becker, Progress and Power (1935)